|
To develop a scorecard, we use historical data from the credit portfolio that have been freed from invalid records. Each record in the portfolio must have one of two possible values that characterize the borrower's credit behavior either as "Good" or "Bad".
After historical data have been prepared, the process of scorecard development requires that the following actions are performed:
- Sampling preparation to train the scorecard;
- Preparation and selection of borrower characteristics that are used to develop the scorecard (including binning);
- Development of the scorecard;
- Assessment of scorecard quality;
- Implementation of the scorecard and its subsequent monitoring.
Since the result of scorecard development must be the best of all possible options, the above-mentioned sequence of actions is typically repeated cyclically.
The following methods can be deployed to improve the quality of the scorecard:
Changes in training and validation datasets;
Changes in defined transformations of borrower characteristics;
Changes in scorecard development methods;
After implementation the developed scorecard is used in real time to facilitate operational decision-making. To support the quality of its performance, one needs to periodically (monthly, quarterly or annually) monitor the scorecard and to readjust or recalibrate the scorecard if necessary.
|
previous
